The recent earnings report from Micron Technology has sent a strong signal that the memory chip market is thriving, driven by favorable supply and demand dynamics. The company’s impressive fiscal Q4 results, with a 93% year-over-year revenue increase to $7.75 billion, have sparked optimism about the industry’s growth prospects.
Micron’s operating income margin swung to a positive 22.5%, a significant improvement from the negative 30.1% margin in the same quarter last year. This, combined with the recovery in memory prices, enabled the company to report non-GAAP earnings of $1.18 per share, a stark contrast to the loss of $1.07 per share in the year-ago period.
The company’s revenue for the entire fiscal year jumped 61% to $25 billion, with adjusted earnings coming in at $1.30 per share, compared to a loss of $4.45 per share in the prior year period. Analysts expect Micron to sustain this level of growth over the next couple of fiscal years, driven by the growing demand for artificial intelligence (AI) technology.
The rapid adoption of AI has created a surge in demand for memory chips across various applications, including data centers, smartphones, vehicles, and personal computers. In response, memory manufacturers like Micron are planning to increase their production capacities, which bodes well for semiconductor equipment suppliers like Lam Research.
Lam Research, which relies heavily on the memory market for its revenue, is poised to benefit from the increased capital expenditures by memory manufacturers. Micron’s plans to spend $3.5 billion in capex in the first quarter of fiscal 2025, with a projected total capex of around $13.3 billion for the full year, will likely drive solid growth in Lam’s top line.
The improved capital spending by memory specialists is expected to filter down to the bottom line as well, driven by the growing demand for high-bandwidth memory (HBM) chips used in data center graphics cards to train AI models. Additionally, the increasing adoption of AI-enabled edge devices is expected to spur content growth of low-power DRAM and NAND storage in enterprise PCs and smartphones, further boosting Lam’s prospects.
With a trailing P/E ratio of 28 and forward earnings multiple of 22, Lam Research stock appears undervalued, considering its projected healthy increase in top and bottom lines. The company’s PEG ratio, which takes into account its growth potential, makes it an attractive buy for investors looking to add an AI stock to their portfolios.
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